The
Bold Riders

Every
decade or so a book is published that is of such value and importance that
one wants to point it out to everyone in the profession.

The
book for the nineties (about the eighties) is The
Bold Riders, Behind Australia's Corporate Collapses by Trevor Sykes.

The
bold riders that Sykes refers to are the corporate cowboys who came riding
onto the financial landscape. Many of them rode roughshod over the
investors, the banks, regulators, auditors, the law, and just about
everyone else, causing awesome destruction.

The
Devastation of the Eighties

In
the relative calm of the nineties it is easy to forget the scale of
financial devastation wrought in the eighties.

As
Sykes points out, we had the biggest string of corporate collapses in
Australian history.

The
collapses included:

ØAustralia's
largest industrial group (Adelaide Steamship);

ØAustralia's
three major television networks (Bond Media, Qintex, Channel Ten);

ØAustralia's
largest textile group (Linter);

ØAustralia's
ninth largest enterprise, in terms of revenue (Bond Corporation);

Ønearly
half of the country's brewing industry (Bond Brewing);

Øthe
second largest newspaper group (Fairfax);

ØVictoria's
largest building society (Pyramid); and

ØAustralia's
largest car renter (Budget).

Other
Casualties

Other
casualties included:

ØSevere
problems being faced by Australia's largest company as measured by revenue
(Elders), its largest media group (News) and the other half of the brewing
industry (Fosters).

ØAustralia's
three largest merchant banks had to be rescued by their parents (Tricontinental,
Partnership Pacific and Elders Finance).

ØTwo
of Australia's state banks suffered devastating losses and were
investigated by Royal Commissions (State Bank of Victoria and State Bank
of South Australia) and the other two state banks were deeply scarred
(Rural & Industries Bank of Western Australia and State Bank of New
South Wales).

According
to an article in the Financial Review Alan Bond and his companies will
have left unpaid debts of around $5.3 billion.

The
article states that "Bond could certainly lay claim to being the
world's largest personal bankrupt".

The
Bill

The
bill for the bold riders was paid, according to Sykes, by:
"Australian taxpayers (who had to bail out the profligate states of
Western Australia, Victoria and South Australia); by shareholders in the
banks (who saw their fortunes diminish and dividends slashed); and by the
remaining creditworthy customers of banks (who were slugged mercilessly
for years afterwards as the banks got their balance sheets back in order).
And unsecured creditors and trade creditors were wiped out by the
thousand."

Because
of the vast devastation caused by the bold riders it is important to
understand what happened and what allowed it to occur so that we can avoid
a repetition.

It
is in this respect that The Bold
Riders is such an important book; for it clearly lays out the
background to the era, the deals that allowed empires to be built and
caused their inevitable collapse, the specific methods that were used by
entrepreneurs to overcome controls, and the way in which so many people
were so easily conned.

Complicated
Transactions

It
is to Sykes credit that complicated transactions and corporate structures
are simplified sufficiently for the reader to follow, yet the details
contained are enough to give one an understanding of the methods that were
used by the main players.

It
is therefore possible for readers to see what happened and to work out
strategies to ensure that they will not be caught by similar transactions
and scams.

Required
Reading

People
for whom this book should be required reading include internal and
external auditors, risk managers, company directors, fraud control
specialists, credit management professionals, investors, regulators and
almost every professional dealing with corporate matters.

This
is so partly because of the failings of the professions in the eighties.
Sykes comments about the professionals:

"If
the financial community worked the way it is supposed to, outside
directors would have exercised their authority over runaway chief
executives; accountants and auditors would have detected and exposed the
pea-and-thimble tricks in the bold riders' accounts; lawyers would have
refused to endorse their thefts; merchant banks would not have lent money
and imprimatur to their schemes; brokers would not have pushed their
shares; fund managers would not have invested in them; and the financial
press would have castigated them.

"Thus
another truly remarkable phenomenon of the 1980s was the way in which all
these professions prostituted themselves - with the odd honourable
exception - to the bold riders."

So
Much Money

Sykes
comments of the era of the bold riders: "Never before in Australian
history has so much money been channeled by so many people incompetent to
lend it into the hands of so many people incompetent to manage it."

Key
Issues

Among
the key issues covered in the book are:

Øhow
lending in the eighties often lost track of the fundamentals and sometimes
even of common sense;

Øhow
conflicts of interest led to poor and costly decisions;

Øhow
deficient accounting records and internal checks led to situations getting
out of hand;

Øhow
creative accounting disguised the fact that companies were in the red;

Øhow
non-executive directors and even executive directors were often misled or
kept entirely in the dark;

Øhow
directors paid themselves exorbitant management fees even when their
companies were in the red;

Øhow
companies plundered the assets from other companies in which they had
shareholdings;

Øhow
secret and improper commissions and profits flourished; and

Øhow
politicians were sold dreams that turned into nightmares.

Lending
Practices

Among
the inappropriate lending practices were:

ØLending
to a company to buy assets, then lending to the holding company on the
basis of those same assets and finally lending to the entrepreneur's
company to buy share in the holding company based on the same assets. Thus
three hundred million dollars might be lent that was only represented by
one hundred million dollars worth of assets.

ØLending
to companies on the basis of dramatic, and ultimately unreasonable,
revaluations.

ØLenders
were not always aware of what amounts other members within their group had
already lent to companies. Their exposure was sometimes far greater that
they realised.

ØLoans
were made that effectively represented equity risks but on which only a
debt return was required. Equity returns should be significantly higher
than debt returns because of the much greater risk involved.

Creative
Accounting

Among
the methods of creative accounting were:

Øhighly
optimistic revaluations of assets;

Ønot
recognising contingent liabilities or often even real liabilities;

Øsham
transactions at balance sheet date;

Øround
robins of cheques to disguise the financial position;

Ørecognising
income immediately that should properly have been recognised over a number
of years;

Ønot
taking account of expenses in the year in which they were incurred in
favour of accounting for them over a number of years;

Ønot
taking account of decreases in asset values;

Ønot
providing adequately, if at all, for bad and doubtful debts;

Øoff-balance
sheet financing, and even off-off-balance sheet financing (omitting notes
from the financial statements that should be there to indicate the
off-balance sheet financing); and

Øusing
equity and consolidation accounting in a very selective manner and
structuring group structures to avoid properly accounting for subsidiaries
and major investments.

A
Concern

What
is of concern to fraud control professionals is the way in which staff in
companies were treated if they objected to the inappropriate management
practices.

Careers
of staff were often destroyed or severely damaged if they took a stand
against the bold riders.

Wealth
of Information

The
Bold Riders
represents a wealth of information from which we have a great deal to
gain. If those concerned with fraud control read only one book during the
nineties it should be The Bold
Riders.

Honest
Cops

by
Quentin Dempster

When
faced with cultures of corruption it often takes a great deal of courage
to stand up and be counted. This is especially so when standing up may
mark you for vilification, threat and even target practice. This book is
about those brave individuals who were prepared to risk their careers,
their health in some cases even their lives to expose corruption in the
Australian police forces.

When
reading this book one is impressed by the courage of the individuals and
astounded by the extreme reactions they encountered. Instead of their
reports being acted on and corruption immediately tackled, these people
were faced with the corrupt being protected and the honest cops being
victimised.

To
the reader it is the willful blindness of authorities and their all too
frequent willingness to subvert the rule of law that is astounding, not to
mention scary. This book is a well written, riveting and clearly told
testimony to the honest cops and a damning indictment of their
difficulties in trying to reintroduce honesty into policing. This book is
important reading for anyone interested in cultures of corruption and how
they need to be tackled.

Whistleblowers

by
Quentin Dempster

I
have had the honour to meet some of Australia’s brave whistleblowers.
Many of those I have met seemed to bear the scars of their battles with
the organisations and individuals that were determined to silence or crush
them. They would have had much easier lives and in many cases benefited if
they had simply ignored the fraud, corruption, public health threats,
substantial wastage and other untenable conduct.

So
why did they speak up? And why did so many people refuse to listen? What
was it about the organisations that encouraged deafness rather than
remedial action? And why did the whistleblowers persist? These are some of
the issues considered in this book about whistleblowers in Australia.

The
book considers cases from both the public and private sectors and in the
recounting and explaining what happened the author gives many valuable
lessons to those interested in protecting the organisations from coverups
and cultures of silence and corruption.

Rorting

Edited
by Malcolm Brown

This
book is subtitled “The Great Australian Crime”. This appears to be
because the authors consider rorting to be a costly crime in terms of its
financial and social costs, and also because they point out how pervasive
it is in Australia. The authors contend that rorting is an Australian way
of life in one form or another.

The
book contains accounts of police corruption, corruption in the justice
system, insurance fraud, the Fine Cotton racing affair, fraud and
corruption in the building industry, tax evasion, the Skase affair, the
State Rail Authority, the Phillip Carver affair, corruption in local
government, travel rorts and a salted gold mine in Borneo.

This
is an interesting collection of topics on fraud and corruption in
Australia.

Inside
Victoria

by
Bob Bottom, John Silvester, Tom Noble & Paul Daley

The
corruption and scandals of Victoria from the 1950s to the beginning 90s
are chronicled in this book. The account is fascinating and easy to read
and is a great guide to the scandalous highlights of the times, from the
Bolte era to the State Bank, Pyramid and the NSCA.

The
Road to Fitzgerald and Beyond

by
Phil Dickie

This
is a useful guide to the Fitzgerald inquiry, exposing four decades of
crime and corruption, details of the people involved and the findings of
the inquiry. Phil Dickie and his colleagues were instrumental in exposing
the activities that led to the Fitzgerald inquiry, so he is well placed to
write the book about those remarkable events.

The
book is a useful guide to anyone who is interested in obtaining a better
understanding of corruption.